So often the local media will spin a story for the Drama…here are the good facts about the unemployment rate. Buckle UP!
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The headline this evening in the newspapers will be that the unemployment rate declined from 9.7% in May to 9.5% in June; the sub-text however isn't that cheery, the labor force decreased by 652K. Non-farm jobs declined 125K about what was expected, 225K jobs were cut from the census workers while private jobs increased less than estimates--up 83K against estimates of +112K. Revisions in May and June added an additional 25K non-farm jobs. Manufacturing jobs increased 9K but were expected up 25K; it has been all manufacturing that has driven earnings recently, now that sector is showing signs of weakening. Yesterday's June ISM manufacturing index declined to the lowest in months. The cuts in census workers still leaves 339K temps working on the census. Most of the increases in jobs came in education and health services, transportation and leisure and hospitality. June average hourly earnings declined 0.1%, the first decline in months implying continued weakness in the job sector. The report showed that 14.6 mil are unemployed.
"Since January, 2008, the seasonally adjusted average change in employment per firm has been negative in every month, with a seasonally adjusted loss of 0.3 workers per firm reported in June for the prior three month period. Most firms did not change employment, 5% (down 3 points from May) increased average employment by 3.4 employees, but 15% (down 5 points) reduced their workforces by an average of 3.3. “Job creation” still hasn’t crossed the 0 line in the small business sector. Government (including health care and education) and manufacturing (a large firm activity) has been providing what few jobs are created, weak given the magnitude of employment loss during the recession. And now the elimination of temporary Census jobs will make the picture look more bleak, although more accurate. A few more private sector jobs is not enough, we need 225,000 every month for 3 years to re-employ 8 million workers who lost their jobs and another 125,000 a month to keep up with population growth." frm National Federation of Independent Business June Survey
One hour after the release of the June employment data the markets were still trying to get their collective hands around it. The stock indexes and the treasury and mortgage markets were churning back and forth. The employment report overall was not good in terms of handicapping the economic recovery. Employment isn't likely to pick up to the pace necessary to expand the recovery in any significant way. The unemployment rate is not likely to decline, but to increase as the discouraged workers that left the job search to sit and collect unemployment will have to find some work with unemployment compensation ending for thousands every month.
How much of the weak employment report was already discounted in the decline in stocks and decline in interest rates? The initial reaction to the employment data rallied the bond and mortgage markets with index selling in equities; but by 9:30 when the stock market opened +10, the 10 yr note -6/32 at 2.97% +2 bp and mortgage prices -6/32 (.15 bp). The holiday weekend will influence markets today. As we have mentioned, the bond and mortgage markets are overbought technically and the stock market is oversold momentarily. The trends are well in tact but we expect a pause in both markets' direction. We call your attention that the FNMA 4.0 coupon has not closed below its 20 day moving average since April 15th; to test the average mortgage prices would have to decline .69 bp frm present levels.
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Bill Nickerson
179 Great Road, Acton MA 01720
978.264.4803 (o) 978.273.3227 (c)
Providing Mortgages Since 1991
Commercial Residential Reverse FHA/VA
